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Vietnam attempts to keep car buyers away with heavy taxation

VietNamNet Bridge – A series of new policies relating to the automobile market have been announced recently. Government agencies do not conceal the intention of restricting the consumption of cars, which are listed as a luxury product.

The Ministry of Finance (MOF) is compiling the draft Prime Ministerial decision on stipulating the fixed tax sums on used passenger cars. If the draft document is approved by the Prime Minister, luxurious and super cars will find it very difficult to penetrate Vietnam, since the tax would increase by tens of thousands of dollars.

The car models with five or less seats with the cylinder capacity over 5.0L, would have the new tax rate of 56,000 dollars, an increase of 26,000 dollars in comparison with the current level. Meanwhile, the models with the cylinder capacity of 4.0L to 5.0L would bear the new tax of 42,000 dollars, up by 15,600 dollars from the current level.

The cars with the cylinder capacity of 3.0L to 4.0L would be imposed 26,000 dollars in tax instead of 20,000 dollars. The new taxes of up to 18,000 dollars would be applied to the cars with the cylinder capacities of 3.0L or less, which means the increases of several hundreds or several thousands dollars.

New tax rates would also be applied to the car models with 6-9 seats. The tax rates would be higher for the cars with higher cylinder capacities. For example, the cars with the cylinder capacities of 5.0L and more would bear the new tax of 54,000 dollars, instead of 24,000 dollars. The new tax rate of 40,000 dollars would be applied to 4.0L-5.0L cars, instead of 24,000, while the rate of 24,000 would be applied for 3.0L-4.0L cars, instead of 19,000 dollars.

Especially, the cars with the taxable prices of over 75,000 dollars would not be taxed as used cars, but they would have to bear the tax rates applied to brand new cars.

In the latest news, the Vietnam Association of Financial Investors (VAFI) has proposed to apply a new policy, which it believes, if approved, would help reduce the number of cars in circulation.

The association has proposed to apply a mechanism which forces people “to pay for the option to buy cars”. Of course, the option prices are always very high and many times higher than the actual market values of the cars.

A luxurious car–Porsche 911 Carrera GTS now imported and distributed by PSC Company, at the price of six billion dong. In the future, if the mechanism is applied, in order to get the car, besides the sum of six billion dong the buyers have to pay to PSC, they will have to spend 60 billion dong more (10 times higher than the actual value of the car) to pay to the state budget in order to obtain the option to buy the car. In this case, people would have to spend 66 billion dong in order to buy a car which is worth six billion dong.

VAFI believes that if the measure is approved, this would help halve the total values of cars and car parts to be imported to Vietnam, thus helping reducing the trade deficit and improve the current traffic.

VAFI has also proposed not to grant more licenses to automobile manufacturers because there are too many manufacturers in Vietnam. The excessive production capacity has led to the high production costs. Meanwhile, all the manufacturing factories do not have high localization ratios (none of the factories has the locally made content ratio higher than 50 percent in terms of value).

Just several days ago, the General Department of Customs (GDC) released the price risk management list which shows the new taxable prices applied as of June 1, to the cars imported under the mode of complete built units (CBU). The new taxable prices are higher by several hundreds or thousands of dollars.

Under the new decision, luxury cars such as Acura, Bentley, BMW, Audi, Cadillac, Lexus, Land Rover have very high taxable prices. An MPV Cadillac Escalade ESV 6.2L, manufactured in the US, for example, now has the taxable price of 56,000 dollars, while a Lexus GS450 Hybrid 3.5L manufactured in Japan, has the taxable price of 44,000 dollars.

This is really a remarkable move by GDC, if noting that this is for the second time the department raises the taxable prices. A similar action was taken in January 2011.